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Malaysian Parliament Assents to Transpacific Trade Partnership - What About the Rest?

The Trans Pacific Partnership (“TPP”) is a regional trade agreement entered into between 12 countries, namely, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam (“TPP Countries”). The TPP is different from a conventional free trade agreement (“FTA”) in the sense that it does not only increase the flow of trade and investment in the Asia Pacific region, but also addresses important concerns like regulatory coherence and the participation of small and medium enterprises (“SME”) in the TPP, as well as cover emerging markets like the digital economy and green technologies.

The table above, as adapted from the website of the Ministry of Trade and Industry (“MTI”), provides a rough guide as to when the TPP will come into force. This is expected to happen after all the TPP countries original signatories have notified New Zealand, the Depositary of the TPP, in writing of the completion of their applicable legal procedures. In the event that the said notification does not happen within two years of signing the TPP (in 2018), it will enter into force once a critical mass of the TPP countries, that is, at least six of them accounting for 85 percent of the Gross Domestic Product (“GDP”) across the TPP countries in 2013, ratifies the TPP. In Singapore, ratification will be completed once the agreement is approved by the Cabinet but any consequent legislative changes will require assent from the Parliament.

A step ahead of everyone, Malaysia’s Parliament became the first TPP country to ratify the TPP on 28 January 2016. This update provides an overview of the stages of ratification which the TPP countries are at, as well as discuss the potential implications of Malaysia’s ratification of the TPP.

How much longer will it take?

Starting with Singapore, the Minister for Trade and Industry, Lim Hng Kiang, said that Singapore anticipates the TPP to enter into force within two years. There have not been any public announcements of concrete measures to implement the TPP by the Singapore government, or in-depth discussions on the matter in Parliament. However, given the positive outlook of the Minister, and the fact that ratification merely involves approval from the Cabinet, the administrative process should not take too long.

In the United States (“US”), however, ratification may not come easily. This is because many Democrats and Republicans are opposed to the TPP, and President Barack Obama, an ardent supporter of the TPP and who would like the TPP to be ratified in July 2016, is leaving office in early 2017. However, Congress has allowed Obama to “fast track” the deal, meaning that Congress representatives can only reject or ratify the TPP. Despite the opposition, US Trade Representative Michael Froman has expressed a great deal of optimism and confidence in getting the necessary ratification from Congress.

Japan’s participation in the TPP will be considered in a Parliamentary session that started from 4 January 2016 and is expected to conclude within the first half of the year. It is uncertain what impact the resignation of Japanese Economics Minister Akira Amari will have on the ratification process, as he was the main negotiator of the TPP for Japan. However, corporate leaders in Kansai have called for a swift ratification of the TPP, and this may put pressure on Japanese lawmakers to vote in favour of it.

In New Zealand, the leader of the opposition Labour Party has made it clear that they were against the ratification of the TPP. However, with the support of Labour Senior MP Phil Goff (who had been given permission to cross the floor) and other political parties, namely, ACT and United Future, the New Zealand government claimed that it had the necessary numbers from Parliament to ratify the TPP. The only problem remaining is the protests from tens of thousands of New Zealand citizens, which the government will have to find ways to tackle.

While there have als0 been protests in Chile against the TPP, considering how Chile was one of the founding members of the TPP, which started out with discussions between Brunei, Chile, New Zealand and Singapore, it is likely that ratification will be a matter of time.

Canada is in a unique position because the TPP was an initiative of and part of the economic strategy of the former Conservative government. As Canadian Trade Minister Chrystia Freeland rightly points out, “signing does not equal ratifying”. Freeland has insisted on the need for a full parliamentary study and debate on the TPP before ratification can take place. There have, however, been speculations that the Canadian government may not be willing to commit to the TPP in the near future.

Ratification of the TPP has met with opposition in Australia as well, but Trade Minister Andrew Robb appeared to take a very firm stand on this matter, as he rejected a request for an independent cost-and- benefit analysis of the TPP, dismissing it as coming from the “usual suspects” (long term opponents of free trade). Robb said that the TPP will be debated in Parliament next week, and that he was confident of getting the requisite approval.

World Bank forecasts suggest that Vietnam, Malaysia and Brunei will be the largest beneficiaries of the TPP, with estimated GDP growths of 10 percent, 8 percent and 5 percent by 2030, respectively. Perhaps the significant potential benefits to the economy have motivated Malaysia to ratify the TPP before it was signed. For the same reason, ratification in Brunei and Vietnam may be imminent as well. In particular, the National Assembly of Vietnam had been nearly unanimous in its view that the TPP is necessary for Vietnam to remain competitive as a manufacturer and to increase the levels of foreign investment in the country.

Finally, Peru’s Minister of Foreign Trade and Tourism, Magali Silva, has spoken positively about the TPP, emphasising that it represented more than just the removal of tariffs and the Secretary of the Economy for Mexico, Illdefonso Guajardo, had indicated that the TPP would be voted on in the Congress of the Union before the end of 2016.

Therefore, whilst there is common believe that the ratification process is wrought with much uncertainty, it nevertheless seems that most of the TPP countries do not foresee tremendous difficulties in the ratification and subsequent implementation of the TPP. Time will tell.

Why was Malaysia so eager to ratify the TPP?

The economic benefits to be generated by the TPP for Malaysia are expected to be substantial. The World Bank has forecast a growth of 8 percent in Malaysia’s GDP by 2030 as a result of it being a party to the TPP. As tariff for exports to TPP countries – some of which are non-FTA partners of Malaysia – are reduced or eliminated, the flow of trade is expected to increase, giving its economy a boost. Further, a higher level of foreign direct investment (“FDI’) in Malaysia is expected once protectionist measures are successfully removed. For instance, restrictions placed on foreign ownership of companies operating in private healthcare, telecommunications, courier, energy and environmental industries will (eventually need to) be lifted in Malaysia pursuant to the TPP.

In addition, the TPP represents a form of continuation of the failed negotiations for an FTA between Malaysia and the US in 2009. According to a report by the Institute of Southeast Asian Studies, a ramification of these failed negotiations is that both the US shares of exports from Malaysia and FDI into Malaysia fell from 2009 to 2013. As such, securing the TPP could reverse such effects.

Yet, there has been strong opposition from the public to the TPP for fear that it will compromise national interests, including the rights of Malaysia’s ethnic majority, and favour multinational companies over domestic ones. However, the Minster of International Trade and Industry in Malaysia, Mustapa Mohamed, allayed some of these concerns by assuring Malaysians that affirmative action policies for its ethnic majority is safeguarded under the TPP. Notably, during its negotiations in the TPP, the Malaysian government had taken into account some of these concerns and made an effort to address the more sensitive issues through watered-down commitments, longer transition periods for implementation, limiting commitments through the Non-Conforming Lists in the TPP, and absolute carve-outs from the TPP.

In any case, the government appears to be placing more emphasis on ensuring the growth of Malaysia’s economy under the TPP, so as to be able to compete effectively with neighbouring countries following months of decline in the Ringgit and economy. Whilst the debate on the pros and cons of the TPP continues to rage on both sides of the political divide in Malaysia, and it will be some time before the effects of the TPP are actually felt by the man on the street, interesting times lie ahead for all TPP Countries in the lead up to the ratification and implementation of the TPP and how this would politically, economically and socially impact each signatory country.

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